How I’ve beaten the S&P for 16 straight months

I’ve been trading and investing for over 5 years and over the last 16 months I’ve beaten the S&P 500 every month and realized a 110% annual rate of return. I wanted to share my approach and how I’ve found success.

Some background: 5 years ago I started as a long-term value investor inspired by Warren Buffett. While I still allocate a portion of my funds to this type of investing, my portfolio’s risk profile has evolved. Post-COVID, I tried day trading for the first time, combining value investing with volatility trading. Over the past 2.5 years, I’ve refined a strategy that has consistently beaten the market for the past 16 months. Last year, my portfolio grew by 110%, and it’s up 30%+ so far in 2024 with a win rate over 75%.

My current strategy relies on automated systems to identify short-term trends (1–4 weeks) in specific industries or markets. Once these trends are identified, I focus on the best companies to capitalize on them based on momentum. I usually hold a position for 1–4 weeks or until the momentum fizzles and then I either cut my loss or take my profit. Here’s the breakdown on what I’m doing in the current market:

Screening the Market:

• Filter for Consistent Growth: I begin by filtering companies with a solid track record of consistent revenue and earnings growth and a market cap of over $2B. This ensures I’m focusing on growing businesses.

• Analyst Ratings: Next, I target companies with recent average analyst buy ratings, indicating positive sentiment and potential for growth. This is crucial since institutional trading often follows these ratings changes.

• Volatility is Key: As a swing trader, I look for relatively volatile stocks. Volatility provides the necessary price swings to take advantage of short-term trends. Typically, I target stocks with a 1-month volatility greater than 2.5%.

• Avoid Earnings: Earnings reports can be highly volatile, so I avoid any stock with earnings coming up in the next 2 weeks to mitigate unnecessary risk.

This process usually narrows the list down to 50–150 stocks at any given time. But I’m not investing in all of these. Next I filter them by momentum.

Selecting the Right Stocks: I use a couple indicators + price/volume action to determine which stocks look like they have some momentum that I can ride.

• Momentum is the name of the game: I use a combination of volume-weighted RSI + Heikin Ashi candles to identify stocks gaining momentum. This reduces my list to 10–20 stocks that are likely to continue their upward trend and hit the right mix of items.

• Hard Stops Based on Momentum: I implement hard stops based on momentum rather than price, cutting losers quickly when their momentum fizzles out to avoid holding underperforming stocks.

This usually results in 2–5 stock to buy each week. I average about 15 stocks per month. So now I’ve bought some stocks. The most important part is managing them to reduce losses and maximize profits.

Managing my Positions:

• No Love for a Trade: Emotional attachment to a trade is a death sentence to that trade. If a stock’s momentum dies, I cut the loss, regardless of how promising it once seemed.

• Profit is King: I hold a trade until the momentum dies. Sometimes that means a trade profits 2%. Sometimes 50%. And sometimes (about 25% of the time) it’s a loss. But the goal is capital preservation and riding winners.

Downside to this strategy is it involves considerable chart time, but it’s tailored to my brain and risk profile. And so far the returns have been worth the effort. During this stretch beating the market I’ve placed 305 trades. There are lots of ways to make money in the market. This is just one way that works for me. And it may not work in 6 months or it might work for the next decade. But I wanted to share while it is working. Hope this provides some insight and ideas to the group.

Happy trading!Some

background: 5 years ago I started as a long-term value investor inspired by Warren Buffett. While I still allocate a portion of my funds to this type of investing, my portfolio’s risk profile has evolved. Post-COVID, I tried day trading for the first time, combining value investing with volatility trading. Over the past 2.5 years, I’ve refined a strategy that has consistently beaten the market for the past 16 months. Last year, my portfolio grew by 110%, and it’s up 30%+ so far in 2024 with a win rate over 75%.

My current strategy relies on automated systems to identify short-term trends (1–4 weeks) in specific industries or markets. Once these trends are identified, I focus on the best companies to capitalize on them based on momentum. I usually hold a position for 1–4 weeks or until the momentum fizzles and then I either cut my loss or take my profit. Here’s the breakdown on what I’m doing in the current market:

Screening the Market:

• Filter for Consistent Growth: I begin by filtering companies with a solid track record of consistent revenue and earnings growth and a market cap of over $2B. This ensures I’m focusing on growing businesses.

• Analyst Ratings: Next, I target companies with recent average analyst buy ratings, indicating positive sentiment and potential for growth. This is crucial since institutional trading often follows these ratings changes.

• Volatility is Key: As a swing trader, I look for relatively volatile stocks. Volatility provides the necessary price swings to take advantage of short-term trends. Typically, I target stocks with a 1-month volatility greater than 2.5%.

• Avoid Earnings: Earnings reports can be highly volatile, so I avoid any stock with earnings coming up in the next 2 weeks to mitigate unnecessary risk.

This process usually narrows the list down to 50–150 stocks at any given time. But I’m not investing in all of these. Next I filter them by momentum.

Selecting the Right Stocks: I use a couple indicators + price/volume action to determine which stocks look like they have some momentum that I can ride.

• Momentum is the name of the game: I use a combination of volume-weighted RSI + Heikin Ashi candles to identify stocks gaining momentum. This reduces my list to 10–20 stocks that are likely to continue their upward trend and hit the right mix of items.

• Hard Stops Based on Momentum: I implement hard stops based on momentum rather than price, cutting losers quickly when their momentum fizzles out to avoid holding underperforming stocks.

This usually results in 2–5 stock to buy each week. I average about 15 stocks per month. So now I’ve bought some stocks. The most important part is managing them to reduce losses and maximize profits.

Managing my Positions:

• No Love for a Trade: Emotional attachment to a trade is a death sentence to that trade. If a stock’s momentum dies, I cut the loss, regardless of how promising it once seemed.

• Profit is King: I hold a trade until the momentum dies. Sometimes that means a trade profits 2%. Sometimes 50%. And sometimes (about 25% of the time) it’s a loss. But the goal is capital preservation and riding winners.

Downside to this strategy is it involves considerable chart time, but it’s tailored to my brain and risk profile. And so far the returns have been worth the effort. During this stretch beating the market I’ve placed 305 trades. There are lots of ways to make money in the market. This is just one way that works for me. And it may not work in 6 months or it might work for the next decade. But I wanted to share while it is working. Hope this provides some insight and ideas to the group.

Happy trading!